China’s Car Market Strain and Component Demand

China’s auto industry is at a critical inflection point. After years of rapid growth driven by government incentives and a surge in electric vehicle (EV) production, the market now faces a mismatch between capacity and demand. Supply is high, but local demand is slowing — and the global supply chain is feeling the effects. For electronic component procurement and supply chain professionals, these shifts present both risks to manage and opportunities to capture.

Overcapacity at Scale

China has more than 100 automakers, most of them focused on EVs. In 2024, only about 15 percent of these operated at or above the 70 percent factory utilization rate often considered the minimum for profitability. Many plants are running well below that level, creating idle capacity, resource waste, and mounting financial pressure.

A few automakers, such as BYD and Xiaomi, continue to maintain high utilization and strong order pipelines thanks to advantages in vertical integration, brand strength, and strong demand in both domestic and export markets. Most others are engaged in price competition that is eroding margins across the sector. As Geely Chairman Li Shufu noted, “The global automotive industry is facing serious overcapacity.”

Export Growth and Market Pushback

With slowing domestic demand, Chinese automakers are aggressively targeting international markets. China has now overtaken Japan and Germany to become the world’s largest car exporter.

The growth is significant. In the first five months of 2025, Chinese car exports to the United Arab Emirates totaled $2.7 billion — a 551 percent increase compared to 2022. Similar surges are occurring in Latin America, Southeast Asia, and Eastern Europe. The surge is being driven by domestic overcapacity, competitive pricing, and growing demand in under-served markets eager for affordable EV and hybrid options.

However, the expansion faces resistance. Western markets are imposing barriers to slow the influx of lower-cost Chinese vehicles. As these restrictions tighten, exports are being redirected toward regions with fewer trade constraints, such as Southeast Asia, Latin America, and parts of the Middle East. This realignment is influencing global demand patterns for automotive components, particularly electronic components.

Impact on the Electronic Component Supply Chain

China’s auto overcapacity is sending mixed signals to the electronic component market. Strong export growth is boosting demand for batteries, chips, sensors, and other critical parts. At the same time, intense price competition and sporadic factory shutdowns are creating unpredictable order cycles with demand surging one quarter and plunging the next. Well-capitalized automakers remain steady customers, while weaker players may delay payments, cut orders, or exit the market altogether.

Competitive Shifts and Supplier Priorities

The divide between market leaders and struggling brands is widening. BYD and Xiaomi continue to operate at high capacity and expand exports, providing consistent demand for components. In contrast, smaller manufacturers are consolidating or exiting, a trend that is expected to continue.

For suppliers, this environment underscores the importance of customer selection. Prioritize relationships with automakers that have healthy financial positions and sustained export growth. Be cautious with those exposed to prolonged price wars or liquidity challenges.

Global trade tensions add another layer of complexity. Tariffs and regulatory changes can disrupt established sourcing channels, extend lead times, and increase costs without warning.

What’s Ahead for the Auto Supply Chain

Several paths are possible. Chinese automakers may eventually scale back production to align with demand, or they may continue to expand exports, targeting emerging markets as established ones tighten restrictions. In either case, procurement strategies will need to account for shifting trade policies and fluctuating demand patterns.

Agility will be the defining advantage. Monitoring factory utilization, tracking automaker financial health, and maintaining diversified sourcing options will position procurement teams to respond effectively.

Fusion Worldwide, a global distributor of electronic components, has seen that the most resilient companies are those with flexible sourcing strategies and robust global networks. If a supplier faces disruption, alternatives must already be in place. If a market closes, opportunities in other regions should be quickly identifiable.

China’s Auto Export Growth and Factory Utilization

• Over 100 Chinese automakers in 2024
• Only 15% of factories running at 70%+ utilization
• China is now the world’s largest car exporter
• Exports to UAE up 551% from 2022 to 2025
• BYD and Xiaomi: high utilization, strong exports
• Smaller brands: low utilization, financial stress

Fusion Worldwide’s Top Tips for Navigating Automotive Supply Chain Volatility

• Track factory utilization rates and export trends
• Focus on financially stable automakers for long-term partnerships
• Diversify your supplier base to reduce risk
• Monitor global trade policy changes and tariffs
• Use real-time data to adjust sourcing strategies

Navigate Market Shifts with Confidence

China’s auto overcapacity is reshaping the global electronic component supply chain, creating both opportunities and risks. Procurement leaders who track shifting trade flows, act quickly when markets change, and maintain diverse, reliable supplier networks will be best positioned for growth.

With global reach, real-time pricing intelligence, and a robust sourcing network, Fusion Worldwide helps procurement teams navigate volatility, secure critical parts, and strengthen supply chain resilience.

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